TITLE

Research Note: Consumer Heterogeneity and Competitive Price-Matching Guarantees

AUTHOR(S)
Yuxin Chen; Narasimhan, Chakravarthi; Zhang, Z. John
PUB. DATE
June 2001
SOURCE
Marketing Science;Summer2001, Vol. 20 Issue 3, p300
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Price-matching guarantees are widely used in consumer and industrial markets. Previous studies argue that they are a marketing tactic that facilitates implicit price collusion. This is because once a store adopts this marketing tactic, its rivals can no longer steal its customers by undercutting its price, and hence they have little incentive to initiate price cuts. While a store with price-matching guarantees has no fear of losing customers to rivals' price cuts, it has every incentive to raise its own price to charge a higher price to its loyal consumers. A growing body of legal literature uses this argument today to justify calls for antitrust actions against stores employing this marketing tactic. However, this theoretical conclusion baffles practitioners and industry experts. In practice, sellers typically embrace this marketing tactic in response to heavier competition and a growing bargain consciousness among shoppers. The introduction of price-matching guarantees by a store is frequently interpreted by industry observers as the initiation of a price war rather than a signal of price collusion. This assertion is supported in many instances by the fact that stores that introduce price-matching guarantees also roll back their prices and typically suffer subsequent loss of profits. Most ironically, the favorite examples used by researchers to illustrate how price-matching guarantees can enforce price collusion, Crazy Eddie and 'Nobody Beats the Wiz,' have subsequently either gone bankrupt or filed for federal bankruptcy protection. In this study we show that price-matching guarantees can indeed facilitate competition: The expected prices and profits can be strictly lower when all stores adopt price-matching guarantees than when they are not allowed to. This is because the adoption of price-matching guarantees generates not only a competition-dampening effect, which has been recognized in the literature, but...
ACCESSION #
5656227

 

Related Articles

  • Retail Network Planning: Achieving competitive advantage through geographical analysis. Thompson, Andy // European Retail Digest;Spring2003, Issue 37, p19 

    Provides information on the achievement of competitive advantage in the retail trade through geographical analysis. Variation of market share from one local market to another; Applications of geographical analysis in retail network strategies; Sources of data on population size and...

  • Shortchanging the relevancy of retail. Rankin, Ken // Retailing Today;9/25/2006, Vol. 45 Issue 17, p9 

    The author reflects on the retail industry's global competitiveness. The author has stressed that the producers of goods and services either compete with one another for market share or they collude to restrain competition. He has shared about the competitive pressure on a supplier which was not...

  • AMD and Intel in CPU price war. Kidman, Angus // APC (Bauer Media Group);Sep2006, Vol. 26 Issue 9, p9 

    The article reports on the continuing price war between Intel Corp. and Advanced Micro Devices Inc. Both of these software firms are engaged in lowering the prices of CPU components to improve their market share. These firms are offering significant discount on older microprocessor designs to...

  • Subprime players snag market share from Ginnie, analysts say. Sibayan, Karen // Asset Securitization Report;7/19/2004, Vol. 4 Issue 29, p17 

    Reports that the private sector's subprime mortgage banks are gaining market share at the expense of the Government National Mortgage Association (Ginnie Mae). Research into factors aside from housing market fundamentals that may be taking Ginnie Mae borrowers away from the sector; Competitive...

  • Consider terms and conditions. to determine pricing policy. Kirschbaum, Les // Marketing News;3/19/1990, Vol. 24 Issue 6, p12 

    The article discusses the need for marketers to consider terms and conditions to determine pricing policy. In selling merchandise and services in a volatile market, strategic and competitive pricing contribute to increase market share. Among the questions that must be asked when price change is...

  • The Price Skirmish--A Distinctive Pattern of Competitive Behavior. CASSADY, JR., RALPH // California Management Review;Winter64, Vol. 7 Issue 2, p11 

    The article discusses aspects of price wars. Price wars are a specific type of abnormal price behavior usually involving price reductions and counter reductions. They are not uncommon in the retail food industry and the retail gasoline trade. One or more of the adversaries involved in a price...

  • Halifax set to make equity-release debut. Bone, Alison // Money Marketing;1/15/2004, p68 

    Reports on the launching of the equity plans of Halifax Corp. in Great Britain. Way of maximizing the market share of the firm; Increase on the level of competitive advantage; Reduction on the prices of the stocks.

  • SWOT Analysis.  // Marui Co., Ltd. SWOT Analysis;Jan2007, p5 

    This article presents an analysis of the strengths and weaknesses of and the opportunities and threats for Marui Co. Ltd. According to the author, with the company's popular brand image, Marui is in a strong position in the Japanese retail market. Stiff competition from both local and...

  • Silent salesmen can shout. Lury, Giles // Brand Strategy;May2003, Issue 171, p32 

    Focuses on the significance of packaging in marketing and advertising products. Way of attracting the consumers; Level of competitive advantage; Expansion of market share.

Share

Read the Article

Courtesy of VIRGINIA BEACH PUBLIC LIBRARY AND SYSTEM

Sign out of this library

Other Topics